Wednesday, September 17, 2014

End the Costly Integration Ban - Part II

For almost eight years, I have been urging, along with other Free State Foundation scholars, an end to the costly so-called "integration ban."This outdated, costly FCC regulation bans cable operators from integrating the security and programming navigation functions in set-top boxes.

The supposed rationale for the integration ban, which was implemented in 2007, was to promote the availability of an independent retail market in set-top boxes. But, as I explained in my July 25 blog, "End the Costly Integration Ban," from the very beginning, "in light of the competition among multichannel video providers that already then existed, it was clear that the costs imposed by the mandated separation of security and program navigation functions outweighed the consumer benefits." The blog explains, at considerable length, and with links to several of FSF's works on the subject, why it is time -- indeed, way past time -- to end the integration ban.

To its credit, the House of Representatives' bill reauthorizing STELA included a provision ending the integration ban. Now, to my dismay, I have read that Senator Ed Markey plans to try to add a provision to the Senate STELA reauthorization that would reinstate the integration ban in some form. For all the reasons spelled out in "End the Costly Integration Ban," I sure hope he doesn't succeed.

The reality is that over his long career, Sen. Markey has always equated more regulation of the communications marketplace with more competition. There may have been some merit to that view, at least in particular instances where segments of the communications marketplace remained monopolistic,  when then-Rep. Markey first articulated this proposition 30 years ago. But there is no doubt, as explained in my blog and the other referenced Free State Foundation work, that the video services marketplace, including the market for all sorts of navigation devices and services, is now competitive.

Sen. Markey's invariable view equating continued regulation with "protecting competition" is now woefully outdated, certainly including this instance. Sen. Markey's position may, in fact, provide some help in propping up particular competitors in some situations for some amount of time. But in markets that are already subject to competitive forces, consumers almost always are the losers.

I hope the Senate Commerce Committee will see the wisdom in the House bill ending the costly integration ban -- and, in doing so, put consumers' interests first. 

Wednesday, September 10, 2014

Is Copyright a Property Right?

Last Friday I attended a debate on Capitol Hill entitled “Is Copyright a Property Right?” which was sponsored by America’s Future Foundation. The answer to the question was “yes” from both sides, but the debate picked up steam when the question “Is copyright a natural right?” arose.
Derek Khanna, a Yale Law Fellow, argued that copyrights are government-granted privileges and are, by no means, natural. President of American Commitment Phil Kerpen said that intellectual property (including copyright), like any form of property that man can have possession of, is a natural right. He said that the Founding Fathers embodied “literary property” into our Constitution for that reason.
Free State Foundation scholars consider intellectual property rights as natural rights, just as the Founders did. In James Madison’s 1792 essay “On Property,” he defines property as “everything to which a man may attach a value and have a right,” and then goes on to say that “a man has a property in his opinions and the free communication of them.” One Perspectives from FSF Scholars entitled “Reasserting the Property Rights Source of IP” uses this essay by Madison to discuss the institutional role shared by intellectual and physical property in defining and limiting governmental power.
During the debate, Kerpen also referred to James Madison who said in the Federalist Paper No. 43, regarding copyright, that “the public good fully coincides…with the claims of individuals.” (It should be noted that this is the only direct reference in the Federalist Papers to the underlying nature of intellectual property that Congress is charged with securing.)
Kerpen also quoted from Chapter 5 “Of Property” of John Locke’s Second Treatise of Civil Government in which Locke said that man is the “master of himself,” and therefore owns the rights to his creative thoughts and ideas.
Ultimately, both gentlemen in the debate agreed that copyright is very important for securing the ownership rights to creative ideas and allowing for more competition in artistic markets. The appropriate length and terms of copyright were still left up in the air. Seven Perspectives from FSF Scholars have addressed the constitutional foundations of intellectual property and the importance it holds for positively impacting the economy.
1.       Randolph J. May and Seth L. Cooper, "The Constitutional Foundations of Intellectual Property," Perspectives from FSF Scholars, Vol. 8, No. 13 (2013).

2.       Randolph J. May and Seth L. Cooper, "Reasserting the Property Rights Source of IP," Perspectives from FSF Scholars, Vol. 8, No. 17 (2013).

3.       Randolph J. May and Seth L. Cooper, "Literary Property: Copyright's Constitutional History and Its Meaning for Today," Perspectives from FSF Scholars, Vol. 8, No. 19 (2013).
3.
4.       Randolph J. May and Seth L. Cooper, “The Constitution's Approach to Copyright: Anti-Monopoly, Pro-Intellectual Property Rights” Perspective from FSF Scholars, Vol. 8, No. 20 (2013)

5.       Randolph J. May and Seth L. Cooper, "The ‘Reason and Nature' of Intellectual Property: Copyright and Patent in The Federalist Papers,” Perspectives from FSF Scholars, Vol. 9, No. 4 (2014).

6.       Randolph J. May and Seth L. Cooper, "Constitutional Foundations of Copyright and Patent in the First Congress," Perspectives from FSF Scholars, Vol. 9, No. 18 (2014).


7.       Randolph J. May and Seth L. Cooper, “Life, Liberty, and the Protection of Intellectual Property: Understanding IP in Light of Jefferson Principles,” Perspectives from FSF Scholars, Vol. 9, No. 25 (2014).

Monday, September 08, 2014

The Burden of Challenging the Importance of IP Rights


About a month ago, the Mercatus Center released a paper questioning what the authors claim are a number of “misleading reports” that show that U.S. output and employment depend on expansive Intellectual Property (IP) rights. Mercatus authors Eli Dourado and Ian Robinson argue that IP proponents do not consider whether jobs created by stronger IP protections actually benefit society. They also claim that reports will often underestimate the “extent to which resources not spent on IP-protected products are spent elsewhere.” In other words, they suggest that jobs might be created in other industries without the protection of IP rights.
Mark Schultz and Adam Mossoff, scholars associated with George Mason University Law School’s Center for the Protection of Intellectual Property, replied to the Mercatus paper in a piece published with AEI’s Tech Policy Daily. They refer to James Madison who said in the Federalist Paper No. 43, regarding copyright, that “the public good fully coincides…with the claims of individuals.” They argue that proper institutions are the foundation of prosperity and development, emphasizing economic freedom, political liberty, and “a robust IP system that has secured property rights in innovative technology and creative works under the rule of law” as fundamental institutions that undergird economic growth.
While the Mercatus paper claims that many pro-IP rights reports do not provide empirical evidence about the relationship between output, employment, and protection of IP rights, Schultz and Mossoff claim that IP skeptics should bear a heavy burden of proof if they wish to disparage the value of IP rights. This is so, they suggest, because it is clear that the United States has prospered under its current IP system – and, importantly, because IP rights rest upon principles embodied in our Constitution.
For over a year, my colleague Seth Cooper and I have been engaged in the process of writing a series of papers elaborating foundational principles relevant to the protection of intellectual property rights. These papers discuss the views of John Locke, James Madison, Thomas Jefferson, Noah Webster and much more. Here are the first seven “Perspectives from FSF Scholars” in the IP series.
1.     Randolph J. May and Seth L. Cooper, "The Constitutional Foundations of Intellectual Property," Perspectives from FSF Scholars, Vol. 8, No. 13 (2013).

2.     Randolph J. May and Seth L. Cooper, "Reasserting the Property Rights Source of IP," Perspectives from FSF Scholars, Vol. 8, No. 17 (2013).

3.     Randolph J. May and Seth L. Cooper, "Literary Property: Copyright's Constitutional History and Its Meaning for Today," Perspectives from FSF Scholars, Vol. 8, No. 19 (2013).
3.
4.     Randolph J. May and Seth L. Cooper, “The Constitution's Approach to Copyright: Anti-Monopoly, Pro-Intellectual Property Rights” Perspective from FSF Scholars, Vol. 8, No. 20 (2013)

5.     Randolph J. May and Seth L. Cooper, "The ‘Reason and Nature' of Intellectual Property: Copyright and Patent in The Federalist Papers,” Perspectives from FSF Scholars, Vol. 9, No. 4 (2014).

6.     Randolph J. May and Seth L. Cooper, "Constitutional Foundations of Copyright and Patent in the First Congress," Perspectives from FSF Scholars, Vol. 9, No. 18 (2014). 

7.     Randolph J. May and Seth L. Cooper, “Life, Liberty, and the Protection of Intellectual Property: Understanding IP in Light of Jefferson Principles,” Perspectives from FSF Scholars, Vol. 9, No. 25 (2014).

Friday, September 05, 2014

FCC's Secret Meetings Raise Significant Process Concerns

A little-noticed article in the Wall Street Journal over Labor Day Weekend concerning the proposed Comcast-Time Warner Cable merger caught my eye, not only because the article obviously concerns an important matter of communications policy, but also because it raises questions regarding a matter of proper administrative agency process. 
In the online version, the article is titled, “Comcast Targeted by Entertainment Giants.” This presages the article’s focus on the substantive communications policy matter. Along with my colleague, Seth Cooper, I filed public comments in the FCC’s proceeding that set forth our views concerning the proper way for the FCC to consider the merger proposal. You can read our comments, and I don’t intend to discuss the substance of the merger proposal here.  
Instead, what I want to focus on is the matter of proper agency process. The article’s subtitle says a lot about my process concern: “FCC Encourages Media Companies to Provide Confidential Complaints on Time Warner Cable Purchase.” According to the WSJ, the FCC “is encouraging those big companies to offer feedback confidentially, people familiar with the matter say.” 
In my decades-long experience with FCC matters, it is fairly unusual, if not unprecedented, for the FCC to take the initiative in encouraging confidential complaints in the context of an on-the-record merger review proceeding. The fact that it is doing so here caught my “administrative law” eye. (As a former Chair of the American Bar Association’s Section of Administrative Law and Regulatory Practice, a current member of the Administrative Conference of the United States, and a current Fellow at the National Academy of Public Administration, I do have such an “administrative law” eye. But, of course, I am speaking here only for myself.) 
The theory spun out in the WSJ article is that the so-called “Entertainment Giants” may be too intimidated to put whatever concerns they may have about the merger on the public record. Unless these companies are able to meet with Commission officials on a confidential basis, so the story goes, they may not present their concerns at all because they fear that they may be subject to retribution by Comcast. 
I can follow the theory, but nevertheless I do question the use of secret meetings in the context of the FCC’s transaction review proceedings. The practice of conducting off-the-record meetings raises questions of fundamental fairness that go to the integrity of the agency’s decision-making process. This is because no one –including Comcast and Time Warner Cable, the parties most directly affected – is in a position to rebut claims made by the parties during the confidential meetings. 
In administrative law terms, the FCC’s merger review proceeding – a proceeding in which the FCC is considering applications to approve the transfer of specific spectrum licenses and other specific authorizations – is an adjudicatory proceeding affecting the legal rights of the parties to the applications. In most cases, adjudicatory proceedings are “restricted” proceedings. This means that ex parte, or off-the-record, contacts between interested parties and Commission decision-making officials are not allowed. In restricted proceedings, all communications between interested parties and FCC officials must be on-the-record. 
But in certain adjudicatory proceedings that may have significant public policy implications beyond the rights of the immediately affected parties, the FCC may invoke what it calls a “permit-but-disclose” process. The agency typically designates major merger reviews “permit-but-disclose” proceedings under Section 1.1206(b) of its rules, and it did so in a public notice in this case. As the name implies, in a “permit-but-disclose” proceeding, an interested party may make an ex parte presentation to Commission decision-making personnel, as long as the person promptly places in the public record the substance of the presentation.
The “permit-but-disclose” process allows interested parties to present their views to Commission officials considering the transaction, while ensuring, at the same time, that the substance of those views is placed in the record so that other interested parties, including the applicants seeking approval of the transaction, have notice of the presentation and an opportunity to respond.
If the Wall Street Journal reporting is accurate, and in fact the FCC is deviating from the “permit-but-disclose” practice in the case of the Comcast-TWC merger proceeding, then I have concerns. Providing fair notice and an opportunity to respond are fundamental elements of due process, even in a constitutional sense. A “permit-but-non-disclose” process, which by definition lacks fair notice and an opportunity to respond, is problematic from the perspective of proper conduct of an adjudicatory proceeding.
Now, I understand that perhaps in this instance the FCC may be invoking a further exception to the restricted proceeding requirements that otherwise apply to adjudicatory matters. Section 1.1204(a)(9) of the Commission’s rules provides that the Commission may allow a secret presentation to be made “to protect an individual from the possibility of reprisal, or [if] there is a reasonable expectation that disclosure would endanger the life or physical safety of an individual.” I understand that this provision may have a role to play as a “safety valve” in very rare situations, including when life or limb may be threatened.
Despite some of the exaggerated and unhelpful heated rhetoric bandied about regarding so-called “media giants” – whether they be cable operators like Comcast and Time Warner Cable on the one hand or content programmers on the other – no one seriously entertains the notion that anyone’s life or physical safety is threatened by on-the-record participation in the merger proceeding. So, perhaps agency officials are reading “reprisal” in the sense of an interested party’s possible fears that it might not be treated as well as it otherwise would like in a business negotiation if it expresses concerns about the proposed merger.
Well, of course. It is understandable that one business “giant” (or even little giant) might prefer not to tick off another by expressing concerns in a public proceeding. But this worry, such as it is, must be balanced by concerns about maintaining the integrity of the agency’s administrative process. I don’t know what is said in the secret meetings – well, that’s obvious – but, without knowing more, my sense is that here the balance tips in favor of putting the substance of the claims on the public record. After all, remedies are available if anticompetitive retaliatory conduct is proven, and they will remain available whether or not the Comcast-TWC merger is approved.
Finally, I understand that the Department of Justice, in investigating proposed mergers, conducts secret meetings just like the FCC apparently is conducting in this instance. I don’t know for sure, but I suspect that DOJ is conducting confidential meetings with some of the very same parties with whom FCC officials are meeting. To some extent this just serves to highlight the duplication of effort, in many instances unnecessary duplication of effort, when both DOJ and the FCC investigate the same merger.
But in a more fundamental sense, DOJ’s conduct of confidential meetings just serves to highlight my concern about the FCC’s process. DOJ, an executive branch antitrust enforcement agency, presumably is investigating whatever competitive concerns it may have about the proposed merger, including those brought to its attention by competitors of Comcast and TWC and those who deal with them. But, ultimately, if DOJ concludes the merger presents competitive concerns, it must either file a complaint in court seeking to block or condition it. This would begin an on-the-record process in federal court that will be conducted in full public view.
In the case of the FCC, ultimately it will adopt a public order regarding the applications seeking transfer of specific licenses. But the substance of the secret meetings will never be put on the public record before this official action is taken. Comcast and Time Warner Cable most likely won’t even know who met with whom, and they won’t have an opportunity to respond.
There may be more than I know as to why the FCC is proceeding in the unusual fashion it is. But based on what I know, I think this is a problematic way for the Commission, acting in its quasi-judicial capacity, to proceed in an adjudicatory proceeding.
Alexander Bickel, the prominent constitutional law scholar, wrote in his 1975 book, The Morality of Consent, that "the highest form of morality almost always is the morality of process." I share Professor Bickel’s view regarding the importance of process.
In this case, converting a “permit-but-disclose” proceeding into a “permit-but-non-disclose” one raises significant process concerns.

Thursday, September 04, 2014

A Number That Does Not Compute – 706: FCC Preemption Will Cost Taxpayers Millions



By Deborah Taylor Tate


Most Americans probably do not associate anything in particular with the number “706.” However, Section 706 of the Telecommunications Act has recently taken the national spotlight after a pointed message from the present Federal Communications Commission Chairman, Tom Wheeler: “I believe the FCC has the power – and I intend to exercise that power – to preempt state laws that ban competition from community broadband.”

Interestingly, the Electric Power Board of Chattanooga in my home state of Tennessee has filed a petition before the FCC requesting the agency to do just that: preempt long-standing Tennessee state law which limits expansion of city services into another city’s boundaries.

Why? Because the publicly-owned Electric Power Board (EPB) decided to enter the broadband/cable TV arena not just in Chattanooga, but in other surrounding municipalities as well. The EPB isn’t the first “muni” government to venture into the broadband business, and if the FCC Chairman gets his way, it certainly won’t be the last.

EPB first hit the national news when it announced its ultra-high-speed fiber optic network, capable of providing Internet speeds up to one gigabit per second, along with a cable TV offering. Adding competition and choice for consumers is typically a good thing. In the case of EPB, however, electric customers, rather than private investment, were responsible for financing EPB’s $160 million loan to its new telecom arm. In addition, EPB received approximately $111 million dollars from President Obama’s “stimulus” bill – so we, the taxpayers, funded that next chunk of funding. And the remaining approximately $29 million is to be paid by the new customers of this broadband/cable offering.

In essence, if you are an EPB customer, you might be surprised to discover that of an approximately $300 million dollar cost for your new government broadband provider, users of the system will be paying only about 10 percent directly, with another 53 percent financed through loans. Taxpayers will be left to foot the balance.

While many blithely tout the benefits of government-owned broadband networks, very few have seriously analyzed the cost to taxpayers. As Andrew Moylan and Brent Mead of the National Taxpayers Union rightly asked in 2012: “How much debt is associated with these projects? How high is the risk of a project failing? If it does fail, how much will taxpayers be on the hook for? Can government officials ever hope to run a business when many of them can’t even balance a budget or restrain spending?”

EPB could have easily looked across our state to a similar muni project, Memphis Networx, to garner some useful economic perspectives – and some lessons learned. While at one time that muni broadband network actually had a revenue stream of $5 million, it never once turned a profit, and the entire network was sold in 2007 for $11.5 million – a loss of more than $28 million.

And when questioned about how many subscribers were being served by EPB’s supposedly fabulous new “gig” service, EPB spokeswoman Danna Bailey said, “We have a handful of residential gigabit-per-second subscribers and nearly two dozen businesses.” I wonder whether the thousands of other Chattanooga taxpayers would consider that a good use of their $270 million in taxpayer dollars or whether they have figured out the per capita cost of this platinum-plated “gig” service.

Whether in Philadelphia, PA, or Burlington, VT, sadly, local municipal broadband across the country has often ended up costing the taxpayers – rather than benefitting them.

Being both a public entity and a private business at the same time creates an inherent conflict of interest and potential for abuse of power not allowed with regard to other types of municipal services. (For a complete review of the abuse of power issues, see the Free State Foundation’s comments, recently filed with the FCC.)

As compelling as these public policy reasons are for generally eschewing the promotion of government-owned broadband systems, they are above and beyond the real crux of the matter, which is that the FCC lacks legal authority to preempt state bans in the first place. And, that could not be clearer than in the EPB case.

There actually is a provision in the Communications Act which does provide narrow and limited legal authority to preempt some state laws. This provision was specifically and narrowly crafted and has been upheld by courts. Early on, proponents of muni broadband attempted to use that same section to override state laws restricting municipal telecom networks. However, the U.S. Supreme Court rejected this claim, clearly siding with state legislative authority. Further, in looking at the legislative history surrounding the specific language of Section 706, while Congress contemplated giving the FCC preemption authority in an early draft, it expressly chose not to include that language in the final version.

I am one of the very few FCC Commissioners who previously served as a “state official,” and I spoke often about the need to be a “humble regulator,” especially as such humility relates to unauthorized federal action and overreach. Preemption is not only wrong from a fiscal and legal perspective, but, also, more importantly, it is short-sighted public policy. We need to continue to fuel the incredible innovation and expansion of the Internet and its progeny, the productive engine of our intellectual economy and the sheer explosion of consumer tech usage in our daily lives. Section 706 needs to be used as a carrot and not a stick.

We all want every American – especially our children – to have access to the vast opportunities that the Internet and broadband can provide. We want to insure that the full breadth of educational advantages are available to everyone – along with the opportunity to participate in this vibrant, multi-sector technological economy. And we certainly want to keep our nation’s competitiveness strong in what is a global economy. So, we welcome Chairman Wheeler’s efforts to promote the expansion and adoption of broadband.

But Chairman Wheeler, like President Obama, should understand that there are very real, legal limitations on just how far “a pen and a phone” can go in a constitutional democracy. As a historian, Chairman Wheeler should appreciate the federalist structure that our forefathers established in the Constitution. As James Madison put the matter in Federalist Paper 45: “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite.”